On a vote of six to three, the IEA Shadow Monetary Policy Committee has recommended a rise in Bank Rate in February. This is the first recommendation of a rate rise since September 2011.
The recommendation was partially a response to a realisation that fiscal policy seems even further off course than was previously believed, and thus risks damaging the credibility of all UK policy making. Another reason for the recommendation is that the lull in the storms engulfing the euro zone provides an opportunity to raise the Bank Rate while the markets are still reasonably calm.
However, there are noticeable differences between the SMPC majority, who wanted a rate rise, and the approach more commonly favoured by the MPC, other UK policy makers and the financial media. In particular, it was believed that the almost unprecedented degree of government intervention in the UK economy in recent years was leading to major supply-side problems preventing the re-allocation of resources from zombie sectors to those with genuine growth potential. It was also feared that sustained artificially low interest rates were leading to a growth-destroying misallocation of capital. Furthermore, SMPC membe